Carbon tax

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A carbon tax is a mechanism for putting a price on the carbon dioxide pollution that results when fossil fuels are burnt.

The Liberal (conservative) Government of British Columbia in Canada introduced a carbon tax in 2008 and was re-elected in 2009. Voters liked the revenue-neutral nature of the tax which put money in their pockets.

Many business groups and figures favour a carbon tax, as do respected climate scientists like Dr James Hansen and the Australian Government’s climate change advisor Professor Ross Garnaut.

A carbon tax offers the following advantages:

It is immediate. The climate does not negotiate. If we don’t severely cut emissions now we will create the tipping points that make catastrophic climate change inevitable. Australia already has had a foretaste of climate change: drought, heatwaves, bushfires, floods and storms. Worse is to come if we don’t act: sea level rises, water and food shortages, loss of life, mass species extinctions, thousands of climate refugees, economic collapse and international and local conflict.

A carbon tax is simple. It is easy to understand and to collect and does not rely on international agreements or carbon trading.

It is effective. A price on carbon emissions is the best way to drive energy efficiency, the transition to renewable energy and to cut our dependence on foreign oil. Since Sweden introduced a carbon tax, it is estimated to have cut emissions by 20 per cent between 1991 and 2000.

It is politically acceptable. Revenues are typically recycled as tax relief – eg. cuts in payroll or income tax, or as a lump sum payments to voters or via some combination of these. Because the price of carbon is set, it gives business far greater certainty than volatile carbon trading.

It has broad support. These include Labor Government advisor, Ross Garnaut, the Greens, and business representatives like David Byers, chief executive of the Committee for Economic Development of Australia, Don Argus and Dick Warburton.

Climate scientist James Hansen supports a tax on carbon production, not consumption. In Hansen’s words, the tax should be collected "at the mine, at the well-head, and at the port of entry." The Hansen approach would drive change and cut emissions quicker than a carbon consumption tax, typically favoured by business, which would only trickle slowly upwards to the biggest polluters.

On the 1st of July 2012 the Australian Federal government introduced a carbon price, a price of $23 AUD per tonne of emitted CO2-e on selected fossil fuels consumed by major industrial emitters only. The revenue raised was used to reduce income tax (by increasing the tax-free threshold) and increase pensions and welfare payments slightly to cover expected price increases, as well as introducing compensation for some affected industries.

The Australian carbon price is technically an emissions trading scheme (ETS) as it operates on the basis of permits that can be traded, but initially the price of permits is fixed and the quantity unlimited; the scheme thus functions similarly, and is popularly referred to as a tax.

The fixed price of $23 AUD in the initial financial year of 2012–2013 is scheduled to rise by 5% (nominal) per year, until transitioning to an flexible-price ETS in 2015–16 when the available permits will be limited in line with a pollution cap.